Overview
FAR Subpart 27.2 establishes the policies and procedures governing intellectual property (IP) liability, the management of royalties, and the security of patent applications within federal contracting. Its primary purpose is to protect the Government’s interests by providing "authorization and consent" for the use of patented technology while ensuring the Government does not pay excessive royalties or face unnecessary litigation without contractor assistance.
Key Rules
- Exclusive Remedy (28 U.S.C. 1498): The sole remedy for patent or copyright infringement occurring during government contract performance is a suit for monetary damages against the United States in the Court of Federal Claims. Injunctive relief (stopping the work) is not available against the contractor.
- Authorization and Consent: By including clause 52.227-1, the Government expressly authorizes the contractor to use patented inventions, which shifts the legal liability for infringement from the contractor to the Government.
- Patent Indemnity: While the Government assumes initial liability, it requires contractors to reimburse (indemnify) the Government for infringement claims arising from the delivery of commercial products or services (Clause 52.227-3), unless specific exceptions apply.
- Royalty Oversight: Contractors must disclose anticipated royalties. The Government reserves the right to reduce or eliminate payments for royalties that are excessive, improper, or involve patents the Government already has a license to use.
- Classified Patents: Patent applications containing classified subject matter must follow strict security protocols to prevent unauthorized disclosure, which could violate espionage laws.
- Prohibition on Government Indemnity: Contracting Officers are strictly prohibited from including any clause where the Government agrees to indemnify a contractor for patent infringement.
Responsibilities
- Contracting Officer (CO):
- Must insert appropriate IP clauses (52.227-1 through 52.227-10) based on the nature of the work (R&D, Commercial, Construction, etc.).
- Responsible for forwarding royalty reports and infringement notices to the agency's patent counsel.
- Must ascertain security classifications for patent applications and act promptly on foreign filing requests.
- Must take action to reduce or eliminate improper royalty charges before contract award.
- Contractor:
- Must notify the Government of any infringement claims (Notice and Assistance).
- Must provide detailed royalty information when required by the solicitation.
- Must comply with security requirements when filing patent applications involving classified information.
- Patent Counsel/Cognizant Patent Office:
- Provides legal advice to the CO regarding royalty propriety and infringement liability.
- Assists in determining the security classification of patent applications.
- Agency Head:
- Holds the exclusive prerogative to waive patent indemnity for specific U.S. patents.
Practical Implications
- Litigation Shield: For contractors, this subpart provides a significant "shield." Because the Government provides authorization and consent, a competitor cannot sue a government contractor to stop production (injunction) via a patent infringement claim; they must sue the Government for money.
- Cost Realism in Bidding: Offerors must be careful when including royalties in their price. If the Government already owns a license to that patent, the CO will adjust the offeror's price upward for evaluation purposes (to account for the royalty the Gov would have to pay) or demand a price reduction.
- Commercial vs. Custom Risks: In commercial acquisitions, the financial risk of infringement remains largely with the contractor. However, in specialized R&D or "non-standard" construction, the Government often assumes the financial risk of infringement to encourage innovation and performance of unique requirements.
- Security Compliance: Contractors working on sensitive technology must coordinate patent filings closely with the CO. Filing a patent application that inadvertently discloses classified info can lead to criminal charges under espionage statutes.